D Harris Jr. is the personal blog of HERS rater and Berkshire Hathaway Realtor Dwight "DJ" Harris Jr.

Interested in reducing your property taxes by farming?

Interested in reducing your property taxes by farming?

Unfortunately, it's not as straight forward as it seems.

What is Public Act 490?

“PA 490 is the single most important land use legislation codified in the Connecticut General Statutes”
— Connecticut Farm Bureau Association

PA 490 is Connecticut's law that lets your farm, forest or open space be taxed at its use value rather than its fair market value for the purposes of property taxes.

For example, a one acre building lot on Johnnycake Mountain Farm in Burlington, CT might be valued at $150,000. The assessed value of that building lot without farm status is $105,000 (assessed value is always 70% of the appraised value).

Annual taxes = $150,000 x 0.7 / 1000 x 31.1 (Burlington's mill rate) = $3,265.50

With farm status, that same building lot might be assessed around $200, meaning the annual taxes are reduced to only $6.22! Amazing, right?

There's always a catch

First, your town assessor will be the judge as to whether or not your property qualifies. Putting a couple chickens in your back yard or planting some vegetables is unlikely to qualify you. Neither is claiming woodland as forestry without an actually forestry permit and foresting activity. Your assessor is also likely to ask for yearly updates that the property is still being used as farm, forestry or open space.

Second, there is a ten year penalty window. The clock starts when a property is conveyed, not when it's placed into farmland assessment, so if you purchased land 10 years ago, you're in the clear. If you just bought 20 acres and place it into farmland assessment (or even transferred it from you to a family member), the clock starts now. Conveying (selling) a farm-classified property within the first year of ownership garners a 10% penalty of the fair market value. The penalty amount reduces by 1% per year, so selling the property after five years of ownership means a 5% penalty. After 10 years it can be sold  without penalty, but the clock starts again for the new owner should they choose to keep the land in farmland assessment. A change of ownership removes the property from farmland assessment and the new owner must reapply between September 1st and October 31st.

Quirky tax implications

  1. PA 490 doesn't apply to your house, or the land necessary for your house to be a legal building lot in that zoning. In Burlington's one acre minimum zoning this means that if you have a house on eight acres of land, the farmland assessment only applies to seven acres. Additionally that first acre of land that the house sits on comprises 95%+ of the appraised value of your home. Each additional acre adds $3,000 to the assessed value. So farming ten acres of extra land would save you $30,000 of assessed value, or about $900 in Burlington. Big savings occur when you have multiple approved building lots in farmland assessment without homes on them. Again, for Burlington, two one acre building lots might be assessed at $100,000 each whereas a single two acre building lot is assessed at $103,000.
  2. Because tax values for properties are established in October of each year, if you plan to buy a farm parcel to develop, buying the property in November will save you a year of property taxes. The same applies for building a home on a vacant building lot. If you begin construction after October, the value of the constructed home will not be taxed until the following October. I wouldn't delay a purchase significantly for this reason, but if you're looking at a September or October closing, it might be worthwhile to wait a month or two to save thousands of dollars.
  3.  Since the qualifier for breaking farmland assessment is change of use or change of ownership, if you want to lock in the price to purchase a farm parcel, or you're not ready to build yet, you might be able to work out an arrangement to leave the existing ownership in place for years while a mortgage secures your interest until you're ready to build. Doing so could save tens of thousands. Consult an experience real estate attorney to make sure your interests are protected.
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